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It’s not uncommon to feel guilty about spending money, even when it’s a necessary purchase, since you may believe the funds could be better applied elsewhere. Perhaps you could buy something better, or maybe you could use the cash to pay down debt or save for the future.

Some purchases trigger more guilt than others, and some people are more prone to experiencing this unpleasant sensation than others. Read on to learn more about feeling guilty after spending money.

Is Spending Money a Bad Thing?

Spending money in and of itself is not a bad thing. In fact, it’s a necessary reality of life, and financial products like checking accounts and credit cards are designed to enable it. It would be hard to imagine navigating daily life without spending cash to, say, buy food or commute to work.

But there are a lot of opinions out there about how people should spend their cash, which can lead to conflicting emotions. Treating oneself can stir up feelings around self-worth, and spending money on a big-ticket item can trigger anxiety about future finances. (You’ll learn more about these scenarios in a moment.)

Despite money’s necessary role in life, feeling guilty about spending it is fairly common. One recent LendingTree survey found that 71% of respondents reported feeling that way. That sensation can snowball, creating free-floating money worries.

Spending cash is an inescapable reality, but the guilt associated with it doesn’t have to be.

Recommended: How to Cut Back on Spending

Reasons Why We Feel Guilty About Spending Money

Often, guilt and anxiety around spending money come from the motivation for the transaction, not the purchase itself. Learning to stop feeling guilty after spending money may require people to notice when they feel guilt or shame after a purchase and change their mindset or spending behavior accordingly.

Everyone has different emotional triggers around their spending, but there are some common scenarios when someone might feel guilty, such as these:

Buying Items to Keep Up With Friends

FOMO, or the “fear of missing out,” may be a silly acronym, but it’s a powerful motivator for spending.
People may spend more so they don’t miss valuable time with friends or feel they are fitting into their group of pals. That could mean paying too much for a vacation or buying a cool new watch they see friends wearing. These expenses can be small, subtle purchases, too, like meeting a friend at a pricier restaurant than you’d usually visit, or it could reflect a significant financial decision, like buying a new instead of used car to “keep up with the Joneses.”

FOMO spending may make someone feel guilty about spending money because it’s tied to the deep desire to fit it. It is often more about self-image and self-esteem than a particular item.

Recommended: How to Save Money on Hotels

Buying Items That Do Not Align With Our Financial Values

Similar to FOMO spending, cultural messaging about “the right way” to spend can lead to a sense of guilt or buyer’s remorse.

It may be the influence of social media encouraging someone to buy a certain brand or societal pressure (the American dream) to own property. Whatever the purchase is, guilt could crop up because it’s not something the individual truly wants — and deep down, they know that.

Saving Goals Impacted by Impulse Spending

An impulse or unexpected purchase could lead to feeling guilty after spending money.

It could be something as simple as forgetting lunch at home and having to buy something expensive near the office. Or maybe it’s buying something you totally didn’t plan to but saw it was on sale. It may be a small purchase, but it eats into your budget and savings goals because it’s unexpected.

Many of these purchases arise from a lack of planning, leading to guilt. You feel as if you messed up, and now you are literally paying for it. Buying a new set of luggage, for instance, is not a good reason to use emergency funds or money in your savings account, so you may be upset with yourself.

Having a Money Mindset Tied to Emotions and Past Experiences

Guilt about spending money may have little to do with the individual and be more connected to their family or upbringing.

People who grew up with parents or guardians in debt may experience feelings of scarcity around money. If you grew up always hearing there wasn’t enough money and getting calls from collection agencies, you may hold a sense of guilt with every purchase.

Or, if someone’s experienced debt in the past, any transaction may trigger anxiety as they remember their old patterns of overspending.

Recommended: Using the 30-Day Rule to Control Spending

Tips to Help You Stop Feeling Bad About Spending Money

Instead of agonizing over every purchase or waking up worried about bills, it may be time to stop feeling guilty when you spend money. Here are some strategies to help combat those negative feelings while improving your financial wellness.

Taking Care of Financial Responsibilities

When people prioritize financial responsibilities, they may feel less guilty spending the surplus, or leftover money, in their budget.

That means enacting a “paying yourself first” mindset, which can be one of the most important personal finance basics. When a paycheck deposits, immediately put money away towards future goals, like retirement or savings. Setting up automatic transfers makes it easy.

Taking care of financial responsibilities first can give someone the freedom to use the remaining cash relatively guilt-free.

30-Day Savings Rule

To avoid guilt over impulse spending, try implementing a 30-day rule on purchases. If you want to purchase something, whether it’s a new laptop or a new coat, wait 30 days. After 30 days, you can buy it. But in many cases, you may find you don’t even want it anymore.

Slowing down the purchase process can help separate needs from wants, as well as quit spending money impulsively.

If impulse purchasing is a major source of guilt, consider a 30-day freeze on shopping, buying only necessities for a month. This can be a good tip to stop overspending. It can help you reset your spending behaviors.

Improving Your Money Mindset

Understanding needs versus wants can be a helpful way to understand and improve money mindset.

For some, the idea of a want is “bad,” translating to guilt when a purchase isn’t absolutely necessary. But, wants can make life more comfortable and bring pleasure — two very good things. So the key is differentiating between needs and wants, and understanding where wants fit into a budget. Perhaps not every want can or should be satisfied, but recognizing they are part of life and budgeting for them is important.

You might try the 50/30/20 budget rule, which says to put 50% of your after-tax earnings towards needs, 30% to wants, and 20% toward savings.

Creating a Personalized Budget

Sometimes guilt stems from the unknown. If someone doesn’t know how much cash they have in their bank account, they may feel guilty purchasing something.

This is where a personalized budget comes into play and can help you manage your money better. Everyone’s budget will be a little different, but feeling knowledgeable about and in control of one’s money can help alleviate guilt.

For example, if someone looks forward to having brunch out every Saturday, they may create a line item in their budget for it. That way, they don’t feel guilty spending the money as it’s earmarked for that purpose. They eliminate the possibility of anxiety spiraling over that cost.

Only Spending Money That You Have

It sounds like common sense, but only spending money that’s available can help prevent guilt around money. It’s an unhappy fact that many Americans carry credit-card debt: The typical balance is currently approximately $6,900, and the average credit card interest rate is almost 25%.

There are of course times when paying with a credit card and carrying a balance are necessary, such as when your hot-water heater breaks or you get hit with a major dental bill. But in general, it’s wise to pay with a debit card or cash so you don’t wind up getting stuck with high-interest debt. By only spending the money you have, you can avoid guilt, worry, and a lower credit score to boot.

Guilt isn’t constructive and won’t change your financial situation. However, working on financial discipline can improve the overall outlook on spending and make sure your purchases are ones you can truly afford.

The Takeaway

People feel guilt about spending money for many different reasons, even when they can afford their purchases. Getting rid of that guilt is possible through understanding why spending makes someone feel guilty and learning financial responsibility to prevent guilt altogether.

One place guilt shouldn’t crop up? In a bank account. Avoid it by knowing that you have an account that pays you a terrific interest rate while charging you no fees.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

How do I get over my guilt of overspending?

First, figure out what kind of spending makes you feel guilty and why. Perhaps it’s based on childhood or past experiences. Then, consider creating a budget and planning purchases to avoid buyer’s remorse or impulse spending.

What is the psychology behind overspending?

People may overspend because they’re afraid of missing out on experiences, they want a self-esteem boost, or they want to fit in with their peers.

How do you forgive yourself for not saving money?

Understanding the emotional triggers behind overspending and not saving can help build a sense of self-compassion. Many people overspend or fail to prioritize saving. Dwelling on it won’t change the past. For these reasons, forgiving yourself and moving on is best.

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Photo credit: iStock/Deagreez

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Banking can be a complex thing, but understanding what’s known as the simple deposit multiplier doesn’t have to be. The simple deposit multiplier is the multiple by which a bank can lend out funds based on the reserve requirements. It ensures the bank maintains the minimum amount of money on hand to keep bank operations up and running. It also gives the bank the opportunity to boost the economy.

What Is a Deposit Multiplier?

Also called the deposit expansion multiplier or simple deposit multiplier, a deposit multiplier is the maximum amount of money banks can create based on reserved units. To put it another way, it’s the multiple that banks use to know how much they can lend out vs. money kept on hand (say, in checking accounts) according to the existing reserve requirement. The deposit multiplier is typically a percentage of the amount deposited at a bank.

Why does the deposit multiplier concept matter? It plays a key role in the fractional reserve banking system, or FRB. This system involves the stipulation that banks must keep a certain amount of money on hand in reserves to conduct their day-to-day business. More specifically, the U.S. central bank, the Federal Reserve, mandates that banks hold a certain amount of money, known as required reserves, to make sure there is enough month for withdrawals from depositors. Any excess money that remains after the bank fulfills its daily operations can be loaned to borrowers (say, for mortgages). The amount that can be used for loans is determined by the deposit multiplier.

By accepting deposits and then making loans, banks have the ability to increase and decrease the money supply. When a financial institution lends out money in excess of its required reserves to businesses and consumers, it can amplify the money supply. That’s why the deposit multiplier metric matters; it’s a key way that the Federal Reserve and central banks can control the money supply as part of an overall monetary policy.

Recommended: How Long Does It Take For a Direct Deposit to Go Through?

How Does a Deposit Multiplier Work?

Here’s how a deposit multiplier works: When the account holder puts money in any of the different kinds of deposit accounts offered, the bank holds a percentage of it. This percentage is called the reserve requirement, which is set by the Federal Reserve. It helps ensure that the bank keeps an adequate amount of cash reserves available to meet the needs of withdrawal requests.

Keeping money accessible on demand can be critical. This protects against people trying to withdraw cash in keeping with fund availability rules and finding that their money is unavailable, which could be a deeply problematic and distressing experience.

A deposit multiplier is the multiple that allows banks to lend out money that’s deposited in the bank. This is the maximum amount of money the bank can lend out according to the value of its reserves. It is typically expressed as a percentage. You’ll learn more about that in a moment.

Real Life Examples of a Deposit Multiplier

To understand a deposit multiplier, it’s wise to understand a few basic banking concepts.

•   For banks, deposits are liabilities, because it is money owned by the account holder, and loans are assets for banks, because that money belongs to the financial institution and must be repaid.

•   Banks also have reserves, which are deposits in the bank or in the Federal Reserve. Reserves are cash available to the bank.

◦   There is also an amount the bank must keep on hand, known as required reserves.

◦   Excess reserves is the term used to describe when the bank has more reserves than is required; these funds can in turn be lent out.

Now, if someone makes a $1,000 deposit, the bank’s liabilities and reserves would increase by $1,000. If the required reserve ratio is 10%, that means must keep $100 on hold and available, but the other 90%, or $900, may be lent. This allows the bank to expand the economy and profit.

To see how the simple deposit multiplier works, consider an example in which a deposit of $10,000 was made and the required reserve ratio is 5%, meaning $500 has to stay on hand.

The deposit multiplier formula is: 1 / reserve ratio.

So with a required reserve ratio of 20%, the deposit multiplier is five. That means that for every dollar in the bank’s reserves, the financial institution can boost the money supply by up to $5. If the reserve ratio was 5%, the deposit multiplier would be 20, and the bank could build the money supply by $20 for each dollar held in reserve. As you see, the lower the reserve ratio is, the higher the deposit multiplier is and the more it can lend out.

Recommended: Benefits of Using Mobile Deposit

How Do You Find the Simple Deposit Multiplier?

The simple deposit multiplier is a ratio between bank reserves and bank deposits. It’s important for maintaining the money supply of the economy and the banking system.

As noted above, this figure is calculated by dividing 1 by the required reserve ratio. For example, if the required reserve ratio is 10%, this means the deposit multiplier is 10. For banks, this means that for every $10 deposited, a total of $1 must be kept in reserves, and the bank can increase the money supply by $10 for each dollar it’s holding.

Deposit Multiplier and the Economy

The Federal Reserve, which is the U.S. central bank, uses the deposit multiplier as one of its monetary tools to control the supply of money in the economy. Usually the money that is deposited in a bank is unlikely to stay in the bank. The money that a consumer deposits in a bank is lent out to another consumer in the form of a loan. The deposit multiplier measures this change in checkable deposits as bank reserves change.

Banks are creating money by expanding the amount of reserves into a larger amount of deposits. If the bank decides to keep a small amount of deposits as reserves that means more money is sent to other banks and more deposits are created at these other banks. If a bank decides to keep a larger sum of deposits as reserves, that means less money or new deposits are made in other banks or circulated among consumers.

When money is loaned out to a consumer, at some point that loan will be repaid and deposited back into the banking system. If there is a required reserve ratio of 10%, then 10% of that new deposit will remain in the bank and the rest can be loaned out into the economy. This cycle fuels economic growth, not to mention profit for the bank.

Recommended: How to Deposit Cash in an ATM

Deposit Multiplier vs Money Multiplier

While these two terms sound quite similar and are closely connected, they are not quite interchangeable. Consider the differences between a deposit multiplier vs. money multiplier.

•   The deposit multiplier is the maximum amount of money banks can create by lending funds. Some deposited money must remain on hand according to the required reserve ratio, but the rest can be used to grow the economy as indicated by this figure. The deposit multiplier is calculated as one divided by the reserve ratio.

•   The money multiplier is the increase in the bank’s money supply. It measures the change in money supply created through bank lending and is usually lower than the deposit multiplier since banks don’t lend all of their reserves.

Recommended: Guide to Maxing Out Your 401(k)

The Takeaway

The deposit multiplier is a tool used by financial institutions. It expresses the maximum amount of money a bank can create based on its cash held in reserves. The figure is calculated as one divided by the required reserve ratio; the lower the reserve ratio is, the higher the deposit multiplier is and the more a bank can lend out. The deposit multiplier can help to optimize an economy’s money supply, which is why this metric is used by central banks all over the world.

If you are a personal banking client, you probably aren’t too focused on the deposit multiplier. You likely want convenience, high interest rates, and low fees. If so, check out what SoFi offers.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

How do you use a deposit multiplier?

The deposit multiplier is used to determine the amount of money that can be created with the funds in a bank’s money supply.

How are deposit levels calculated?

In banking, the loan-to-deposit ratio (LDR) is calculated by dividing the bank’s total amount of loans but the sum of deposits over a specific time period. Loans are considered assets, by the way, since the money is the bank’s, while deposits are deemed liabilities, since they belong to the account holder.

What is the formula for a simple deposit multiplier?

To find the deposit multiplier, you divide one by the required reserve ratio. So if the reserve ratio is 5%, the deposit multiplier is 20. If the reserve ratio is 10%, the deposit multiplier is 10.

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Photo credit: iStock/MicroStockHub

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Your finances and time, if managed well, can elevate your quality of life significantly. Finding ways to make the most of these two resources can enhance how secure and enjoyable your days are.

Read on to understand the time-money relationship and how to make it work as well as possible.

What Does ‘Time Is Money’ Actually Mean?

The phrase “time is money” means that a person can translate their available hours into money by getting paid to work. If you’re sitting around relaxing, for instance, you could instead be working and earning cash.

This saying can be further explained in terms of opportunity cost. Say a person has an hour to spend. That person can choose to work for that hour or they can choose to do something that does not yield any income, like reading a book. The person who reads the book loses the opportunity to earn income for that hour. If the person can earn $50 an hour, the opportunity cost of choosing to read a book is $50. Thus, time is money.

Of course, it’s every person’s decision about how much they want to work versus enjoy their free time as they see fit. Some people are driven to work 60 or more hours a week and are focused on how much they can deposit in their checking account. Others, craving work-life balance or, say, taking care of children, work much less (if at all). They have chosen a different path.

What Is the Relationship Between Time and Money?

Balancing time and money can involve a trade-off. To make more money, some people spend more time on their careers and have less time for the other obligations and pleasures in life, whether that means spending time with family, relaxing, or pursuing hobbies and passion projects. Working long hours can mean less time to clean, shop, and otherwise handle chores. If one makes enough by working, they can perhaps delegate those duties and hire someone to handle them.

For example, a lawyer might be able to afford to pay a landscaper $50 an hour to do yard work while they earn $300 an hour working with a client. The lawyer nets $250 by doing so. If the lawyer does the yardwork and not the landscaper, the lawyer loses the $300 they could have earned doing legal work. Seen through a financial lens, it could be sensible to embrace strategies that maximize your earning power with the limited time you have. If, however, you are a person who earns less than a lawyer and/or you love to garden and care for your property, you might well decide to do the yard work yourself.

Recommended: What Is the Time Value of Money (TVM)?

Tips for Managing Time and Money

As you may see from the yard work example above, good time management is not just about working every waking hour. It’s about allocating time for tasks wisely and balancing work and personal lives. Otherwise, your health, mood, and personal relationships could suffer. Not every minute of your time should have a price tag on it.

Here are some time and money management tips to get you started.

Prioritizing Tasks

You only have so many hours in a day to get things done, so prioritizing is critical. Work, picking children up from school or daycare, grocery shopping, and preparing food are daily and weekly priorities. So too are things like exercise, meditation, seeing loved ones, and doing whatever feeds your spirit, from rafting to reading. Plan your priorities daily, but typically no more than three or you could feel overwhelmed.

Writing Down Your Schedule

Your daily schedule is critical, but planning your time weekly and monthly can also keep you on-task and organized. More than that, it can help you visualize your available time and consolidate tasks so you can make your life more manageable. For example, can you combine one task with another? Can you go to the grocery store while your child is on a playdate, saving you a trip? Can you fit in a workout during your lunch hour? Organizing your time and life can make you much more efficient and reduce stress.

There are many calendar-keeping tools available, from cool journals to apps. Using alerts on your mobile phone can also help you keep track of the “musts” on your daily schedule.

Putting Time Limits on Tasks

Spending more time on enjoyable tasks and putting off the less palatable ones is human nature. But it’s also procrastination that can leave you short on time and stressed about deadlines at work and at home.

One good solution: Set time limits for activities, and schedule them wisely. Tackle a difficult project when you have the most energy, such as first thing in the morning. Block off an hour or two. If you split up challenging tasks into manageable chunks, you won’t become overwhelmed. Just getting started and seeing some progress can motivate you to continue.

Focusing on One Task at a Time

Multitasking can be a fast track to inefficiency. Walking the dog and listening to a podcast is one thing, but trying to write a report while your child is doing homework (and asking for help), is another — and probably not efficient — one.

Given a quiet room and time to focus, you might knock out the report in an hour or two. Multitasking, on the other hand, can mean for many of us that nothing receives your full attention and is done well.

Removing Interruptions While Working

Social media, pop-up notifications, emails, phone calls, colleagues who want to chat on Slack, family members, and pets all can enrich and inspire your life, but when you are balancing time vs. money, face the facts. They pull you away from work and from being efficient. Find ways to eliminate interruptions, and you’ll likely accomplish more things, more quickly.

If you have an urgent task and work at home, consider going to a coffee shop or a library where you might have more peace. If colleagues at work are a problem, ask to use a conference room temporarily to get your work done or say you are on deadline and pull back from chat apps and email alerts. To avoid technology distractions, try putting your phone away in a drawer so that it is out of sight and out of mind while working.

Creating a Realistic Budget

When it comes to the financial aspect of money vs. time, budgeting can really optimize your efforts to wrangle your funds.

A budget helps you account for your income, expenses, and savings so there are fewer surprises and so you hit your goals. Many people, in fact, believe that being disciplined with money or more accountable for it is a major key to wealth.

Making a budget typically involves looking at your monthly after-tax income, including keeping track of money from side hustles and the like. Then, you will subtract the cost of your monthly necessities (housing, food, medical care), as well as debt, and then allocate what’s left to spending and saving. This process should reveal if you are living within your means, or are you spending more than you earn?

If your expenses exceed your income, look for ways to cut back on spending, such as eating out less, biking to work instead of driving or calling an Uber, or perhaps consolidating high-interest credit card debt with a lower-interest personal loan. The ultimate goal is to create a budget that you can live with and with room to save for long-term goals, like the down payment for a house or for retirement.

Finding Ways to Invest Your Money

A reasonable goal for long-term financial planning is to set aside 10% of your income and invest it. You can educate yourself with books, podcasts, websites, and apps to, say, learn the pros and cons of stocks vs. bonds. A professional financial advisor can also help you to find the best vehicles to build wealth. For example, a 401(k), a diversified portfolio of stocks and mutual funds, or a passion like watch investing or whiskey investing can all play a role in your investing.

Remember, however, the golden rule for investments, though, since they are not covered by the FDIC, or Federal Deposit Insurance Corporation: Only invest what you can afford to lose.

Using Time for Yourself Wisely

Work-life balance is increasingly a goal for Americans, and a number of companies are experimenting with four-day workweeks as one path to achieving this.

Overwork and burnout are real dangers for those who Incessantly strive to capitalize financially. It’s definitely wise to schedule time for yourself. It can be as simple as meditating, spending time with family, working out, volunteering, or pursuing a hobby. Spending time on things that bring you joy can spur you to be your best when you are working, too.

Automating Your Bills and Payments

Automating your monthly bills can be a win-win. Paying bills on time is the biggest single contributor (at 35%) to your credit score, and taking care of those charges before they accrue late fees also makes good money sense.

What’s more, in terms of the time vs. money equation, setting up automated bill payments will also free up some space in your schedule. Your bills will be paid on time each month, without you having to click around websites or write checks and buy stamps to mail them. It will take a few minutes of work up front, but the task is then much easier.

Watching Your Spending

Remember that budget you diligently prepared? Stick to it by following the 30-day spending rule. Wait 30 days before purchasing an item to avoid overspending and racking up debt. If you do spend too much, you’ll pay unnecessary fees on overdrafts or credit card interest payments.

The Takeaway

There’s little doubt that time and money are two valuable but limited resources. Making the most of each requires some smart strategies, such as budgeting, scheduling, reducing overspending, and finding work-life balance. But by respecting the value of time and money — and managing them well, you’ll likely enjoy a better quality of life, today and in the future.

Want to have more time and watch your money grow faster?

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Is time worth more than money?

The answer to this question is subjective. To a person who is terminally ill, time is clearly the most precious commodity; they might rather have less money and more time. In another scenario, someone might say money matters more. They might be willing to work every free minute for years to ensure they have a high-paying career, even if they don’t have much free time to enjoy the luxurious life they lead.

Is it worse to waste my time or money?

Neither wasting time nor money is a great idea, though many of us of course do so from time to time. A better approach can be to minimize the waste and balance your life so you have both enough time and money. This often requires prioritizing, planning, and budgeting.

What are the benefits of managing time and money wisely?

A key benefit of managing time and money wisely is better quality of life. Effective time and money management will make all aspects of your life easier because you gain peace of mind and may stress less about your money and your schedule. You can take control of two very important variables.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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An ABLE account — short for Achieving a Better Life Experience — is a tax-advantaged savings vehicle that’s designed for eligible people with disabilities. Designated beneficiaries can use an ABLE savings account to set aside money to pay for qualified disability-related expenses.

An ABLE savings account can offer substantial tax benefits for qualified individuals, as contributions grow tax deferred and qualified withdrawals are also tax free. Also referred to as a 529 A account (owing to its similarity to a 529 college savings plan), the ABLE account is designed to make saving and investing more advantageous for people with disabilities and their families.

What Is an ABLE Account?

An ABLE account is a tax-advantaged savings account for people with disabilities and their families. ABLE savings accounts allow people to pay for qualified disability expenses (QDEs) without impacting their ability to qualify for Medicaid or other government assistance programs.

The Achieving a Better Life Experience Act became law in December 2014. The intention behind the ABLE Act and the creation of ABLE accounts was to ease financial stress associated with paying for many of the QDEs associated with different disabilities. Qualified expenses include: housing, education, assistive technologies, specially equipped vehicles, and even food.

Under the ABLE Act, states have the authority to establish an ABLE disability account program. As of June 2022, all 50 states offer at least one ABLE savings account program, according to the ABLE National Resource Center. However, plans are currently inactive in Idaho, North Dakota, South Dakota, and Wisconsin.

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How Do ABLE Accounts Work?

An ABLE account is a type of tax-deferred savings account similar to a 529 college savings plan. These accounts work by allowing designated beneficiaries to contribute money, up to prescribed limits.

The money can come from various sources, including individual or corporate contributions, or a trust. The money in an ABLE savings account does not affect your eligibility for other government benefits.

Also like a 529 plan, the money grows on a tax-deferred basis and can be withdrawn tax free when it’s used to pay for qualified disability expenses. Broadly speaking, QDEs are any expenses a person with disability pays in order to maintain their health, independence, and quality of life.

However, withdrawals from an ABLE savings account for non-qualified expenses can result in those distributions being subject to tax. Using money in an ABLE disability account for non-qualified expenses could also affect eligibility for government assistance.

Benefits of an ABLE Account

Generally speaking, ABLE savings accounts are designed to make paying for certain expenses easier for people with disabilities. Here are some of the main advantages of opening an ABLE savings account.

Tax-Deferred Growth and Tax-Free Withdrawals

One of the main draws of ABLE accounts is their tax-advantaged status. The money that goes into an ABLE account can be invested and allowed to grow on a tax-deferred basis. As long as distributions are used to pay for QDEs, withdrawals are always 100% tax-free.

ABLE accounts have an edge over savings accounts, since designated beneficiaries can invest their money in the market. That means they have an opportunity to grow their savings through the power of compound interest.

Flexibility

The ABLE account allows for flexibility, since the money can be used to pay for a wide range of disability-related costs. With a traditional 529 plan, savers are limited to using funds to pay for education-related expenses. The ABLE savings account allows designated beneficiaries (i.e. the disabled individual or family member) to use the money for the categories noted above — housing, transportation, technology, food, etc. — as well as employment training, health and wellness costs, legal and administrative fees, and more.

Friends, family members, and others can contribute to ABLE accounts on behalf of the designated beneficiary, up to the annual limit. For 2024, the annual contribution limit, including rollovers from 529 plans, is $18,000.

And beneficiaries don’t have to worry about those contributions affecting their ability to qualify for Medicaid, Supplemental Security Income (SSI), or other forms of government aid, assuming they’re within certain limits. To learn more about who can make qualified contributions, check the ABLE website, or consult the ABLE program in your state.

One further note: In addition, a U.S.-resident ABLE account owner who doesn’t participate in an employer-sponsored retirement plan can contribute up to an additional $14,580 from their earnings into their ABLE account. The amount that can be added to the account is higher for residents of Alaska at $18,210 and Hawaii at $16,770. (More details on this below.)

Financial Autonomy

ABLE accounts afford designated beneficiaries with a measure of financial independence, since they can set up an ABLE account themselves and make contributions on their own behalf. Individuals can also manage the account, and decide how to invest their savings and when to take qualified distributions for eligible expenses.

An ABLE account can give a person with disabilities more control than something like a special needs trust, a type of trust fund. In a special needs trust, the trust grantor sets aside assets for a disabled beneficiary but that beneficiary doesn’t have a say in how the money can be used.

Drawbacks of an ABLE Account

While ABLE accounts have some positives, they’re not necessarily right for everyone who has a disability. Here are some of the potential drawbacks to consider when deciding whether to open an ABLE account.

Non-Deductible Contributions

Contributions to an ABLE savings account do not offer a tax break in the form of a deduction. (This is also true of some state 529 plans.) So even if you fully fund an ABLE account up to the annual limit each year, you can’t use those contributions as tax deductions.

Age Restrictions

An ABLE account can only be established for someone who has a blindness or disability that began before age 26. So someone who becomes disabled at age 27 or later would not be able to open an ABLE disability account.

The age requirement puts this type of special needs savings account out of reach for some individuals, though they could still be named the beneficiary of a special needs trust.

Worth knowing: There’s legislation afoot to raise the age of eligibility to “before 46” versus “before 26” in 2026.

Means Testing

Money held in an ABLE account is subject to means testing for the purposes of qualifying for Supplemental Security Income and Medicaid. The first $100,000 in ABLE account assets is disregarded for SSI but going over that limit can result in a suspension of your benefit payments.

The $100,000 account balance threshold doesn’t affect Medicaid eligibility. But if a designated beneficiary passes away with money remaining in their ABLE account, the state can lay claim to those assets in order to recoup any Medicaid benefits that were received.

Opening an ABLE Account

People with disabilities can open an ABLE account in any state, as long as that state’s plan is open for enrollment. The ABLE National Resource Center maintains a map with details for each state’s program, including whether out-of-state residents are accepted.

Once you find an eligible program, you can open an ABLE account online. There’s some basic information you’ll need to provide, including:

•   Your name

•   Date of birth

•   Social Security number

•   Bank account number

Parents can open an ABLE account on behalf of a minor child with disabilities. You also have to meet the definition of a designated beneficiary. In New York, for example, you must be able to show that one of the following is true:

•   You’ve been classified as blind as defined in the Social Security Act

•   You’re entitled to SSI or Social Security Disability Insurance (SSDI) due to a disability

•   You have a disability that’s included on the Social Security Administration’s List of Compassionate Allowances Conditions

•   You have a written diagnosis from a licensed physician documenting a physical or mental impairment which severely limits function, and is expected to last at least one year, or can cause death

Similar to opening a bank account, there may also be a low minimum deposit requirement to open an ABLE account.

Requirements of an ABLE Account

There are certain requirements that must be met in order to open an ABLE account. Generally, you’re eligible for one of these accounts if you:

•   Become eligible for Supplemental Security Income based on disability or blindness that began before age 26; or

•   Are entitled to disability insurance benefits, childhood disability benefits, or disabled widow’s or widower’s benefits based on a disability or blindness that began before age 26; or

•   Certify that you have a medical impairment resulting in blindness or disability that began before age 26.

Again, age and disability status are the most important requirements for ABLE savings accounts. You can open an ABLE account in your home state or in another state, if that state’s program allows non-residents to enroll. It’s important to note, however, that you can only have one ABLE account in your name.

How Much Can You Contribute to an ABLE Account?

The annual contribution limit is pegged to the gift tax exclusion limit each year, which is $18,000 for 2024. Eligible designated beneficiaries can, however, contribute additional money if they’re employed and have earned income for the year.

The IRS limits those contributions to an amount up to the lesser of:

•   The designated beneficiary’s compensation for the year, OR

•   The poverty line amount for a one-person household as established by the Community Services Block Grant Act

For 2024, the allowable amount for persons with disabilities in the continental United States is up to $14,580. The limit for residents of Alaska $18,210 and Hawaii at $16,770.

Funds from a 529 college savings account can be rolled into an ABLE account. Any rollovers count toward the annual contribution limit. So if $6,000 have been contributed to the plan for the year already, in theory you could rollover up to $11,000 into an ABLE account from a 529 savings account for 2022.

How Can You Use ABLE Money?

As discussed earlier, money in an ABLE savings account can be used to pay for qualified disability expenses. That means expenses that are paid by or for the designated beneficiary and are related to their disability.

Examples of things you can use ABLE money for include such living expenses and other costs as:

•   Education

•   Housing expenses

•   Food

•   Transportation

•   Employment and career training and support

•   Assistance technology and related services

•   Health care

•   Prevention and wellness

•   Financial management and administrative services

•   Legal expenses

•   Funeral and burial expenses

•   Day-to-day living expenses

The IRS can perform audits to ensure that ABLE account funds are only being used for qualified disability expenses. So designated beneficiaries may want to keep a detailed record of withdrawal and how those funds are used, including copies of receipts.

ABLE Accounts vs Special Needs Trusts

A special needs trust (SNT) is another option for setting aside money for disability expenses. In a special needs trust, the beneficiary does not own any of the trust assets but the money in the trust can be used on their behalf. A trustee manages trust assets according to the direction of the trust grantor.

Here’s how ABLE accounts and special needs trusts compare at a glance. You may benefit from consulting a tax professional to understand when and how income from an SNT may be taxed.

	ABLE Account	Special Needs Trust
Tax Treatment	Growth is tax-deferred and qualified withdrawals are tax-free; there is no tax deduction for contributions.	Income generated by the trust (i.e. withdrawals) is generally taxable to the beneficiary during their lifetime.
Control	Designated beneficiaries can control how assets in their account are managed.	The trustee manages the trust on behalf of the beneficiary, according to the wishes of the grantor.
Contribution Limits	Contribution limits correspond to annual gift tax exclusion limits.	No limit on contributions, though the gift tax may apply to contributions over the exclusion limit.
Medicaid/SSI Impact	Up to the first $100,000 in assets is not counted for SSI purposes; balances are not counted for Medicaid eligibility.	Assets are not counted toward Medicaid or SSI eligibility.
Use of Funds	Funds can be withdrawn tax-free to pay for qualified disability expenses.	Funds can be withdrawn for any purpose, though they’re typically used for disability expenses. The beneficiary may owe taxes.
Age Requirement	Disability must have occured before age 26.	Beneficiaries must be under age 65 when the trust is created.

Alternatives to ABLE Accounts

If you don’t qualify for an ABLE account or you’re looking for ways to save on behalf of a disabled child or dependent, there are other accounts you might consider. Here are some options to weigh when looking for alternatives to ABLE accounts.

Special Needs Trust

As mentioned, an SNT can also be used to pay for disability-related expenses. Establishing a trust can be a little more involved than opening an ABLE account, since you’ll need to create the trust on paper, name a trustee, and fund it with assets. But doing so could make sense if you care for a disabled child or dependent and you want to ensure that they’ll be taken care of should something happen to you.

529 College Savings Account

A 529 college savings account is designed to help parents and other individuals save money for education while enjoying some tax benefits. Contributions can be made on behalf of a beneficiary with disabilities. That money can grow tax-deferred, then be withdrawn tax-free to pay for qualified education expenses.

You might open a 529 college savings account for yourself or your child to help them pay for school without incurring student debt.

Bank Accounts

Opening one or more bank accounts is another way to set aside money to pay for disability expenses. Bank accounts won’t yield any tax breaks but they can allow for convenience and accessibility.

•   Opening deposits: Brick-and-mortar banks might require an opening deposit of anywhere from $5 to $100 while online banks might allow you to open a checking or savings account with as little as $1 or even $0, with funds to be deposited in the future.

•   You’ll need government-issued ID, like a driver’s license, to open an account.

•   So how long does it take to open a bank account? Not long, if you’re doing it online. Typically, when you have your basic forms of ID ready, the time it takes to open an online account is minimal.

•   When can you create a bank account online? The simple answer is when you’re old enough to do so. Keep in mind that the legal age to open a bank account in your name is typically 18 so if you’re underage, you may need your parents to open the account for you.

•   Online banks and traditional banks can offer a variety of account options. Student checking and savings accounts, for example, are designed for younger teens. Older teens who are headed off to university might be interested in opening a bank account for college students.

Banks can also offer certificate of deposit (CD) accounts and money market accounts.

If you’re wondering whether you can open a bank account with no ID, the answer is no. You’ll need some form of personal identification, such as a government-issued ID, in order to open a bank account online or at a brick-and-mortar bank.

The Takeaway

An ABLE account can make it easier for someone with disabilities to meet their needs while maintaining control over their finances. With an ABLE account, the money that’s contributed grows tax-free and can be withdrawn tax free to pay for qualified expenses relating to the care of a disabled person. Another benefit: Those qualified expenses aren’t limited to health care. The range of expenses include housing, food, transportation, employment — as well as health and wellness and preventive care.

In addition, you may want to consider other options, such as online bank accounts, for growing your savings.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

What is considered an ABLE account?

An ABLE account is a tax-advantaged account that’s administered through a state program for the purposes of helping persons with disabilities to save and invest money. An ABLE account’s tax status sets it apart from bank accounts, college savings accounts, or Individual Retirement Accounts (IRAs). You can sign up with your state program.

Should you have both an ABLE account and a special needs trust?

It’s possible to have both if that’s desired. An ABLE account can be managed by its designated beneficiary, allowing them control over their finances. Special needs trusts are managed by a trustee on behalf of the beneficiary, meaning they cannot direct how the money is spent. Having both an ABLE account and a special needs trust can help to ensure that someone with disabilities is taken care of financially while allowing them a measure of independence.

Is a Roth IRA an ABLE account?

No. A Roth IRA is a tax-advantaged account that’s used for retirement savings. Roth IRAs are funded with after-tax dollars and qualified distributions are tax-free. They’re not limited to persons with disabilities while an ABLE account is designed to be used specifically for qualified disability expenses.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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A chartered bank is a bank whose operations and services are governed by a charter issued at the state or federal level.

A charter is a legal document that essentially tells the bank what it can and can’t do. Chartered banks can be commercial banks but they can also operate as savings banks, savings and loan associations, online-only banks, or credit unions. They can accept deposits and make loans, just like other banks.

There are, however, a few characteristics that make chartered banks unique. And it’s important to know that not all banking startups may offer the benefits of chartered banks. Learn the details here.

What Is a Chartered Bank?

A chartered bank is any bank that’s authorized to accept deposits or lend money according to the terms of a legally recognized charter. Chartered banks are subject to oversight from the government agency that issues their charters.

Like other banks, chartered banks can offer different types of financial accounts, including:

•   Checking accounts

•   Savings accounts

•   Money market accounts

•   Certificate of deposit accounts

•   Specialty accounts, such as custodial accounts or bank accounts for college students

Chartered banks can also offer various types of loans, including personal loans, auto loans, lines of credit, and mortgages.

A chartered bank may have a physical footprint with brick-and-mortar branches and ATMs. Or it may operate online-only. Both traditional and online chartered banks can allow customers to access their money via online banking, mobile banking, or phone banking.

How Does a Chartered Bank Work?

Chartered banks work by accepting deposits and making loans. When you deposit money into a savings account at a chartered bank, for instance, the bank may pay you interest on those funds. Meanwhile, the bank uses your deposits and those of other customers to make loans, charging borrowers interest in the process. That’s largely how banks make profit.

A chartered bank can also generate revenue by charging its customers fees. If you’ve ever paid an overdraft fee, for example, you’re aware of how much a single fee can add up to. How much you pay in fees to a chartered bank can depend on whether you’re dealing with a brick-and-mortar or online bank. Since online banks tend to have lower overhead costs, they can pass the savings on to their customers in the form of higher rates on deposits and lower fees.

Banks must apply for a charter; they’re not granted automatically. Each state sets its own requirements for state-chartered banks. The Office of the Comptroller of the Currency (OCC) regulates federally-chartered banks.

Regardless of whether the bank is chartered by the state or federal government, the bank must insure deposits through Federal Deposit Insurance Corporation (FDIC) coverage. This covers up to $250,000 per depositor, per account ownership category, per insured institution. The bank must also apply for approval to join the Federal Reserve System if it wishes to do so.

Chartered banks may or may not be part of the SWIFT banking system. SWIFT, short for Society for Worldwide Interbank Financial Telecommunication, is an electronic messaging system that’s used to send financial transactions around the world. A chartered bank can, however, still process wire transfers and other electronic transactions even if they’re not part of SWIFT.

What Is a State Chartered Bank?

You may wonder what it means if a bank is chartered by the state vs. the federal government. Here’s a closer look.

A state-chartered bank is a bank that receives its charter from the state. As such, it’s subject to regulation by the chartering agency in that state. Again, the requirements to obtain a charter and the rules the bank is expected to follow once they secure a charter will depend on the state.

In California, for example, the process to become a chartered bank is similar to the process for establishing a commercial bank. Before a bank can apply for a charter, it has to complete a feasibility study, receive approval to proceed from the local government, and receive voter approval. The application itself is just a simple form, often only a couple of pages.

State-chartered banks that are part of the Federal Reserve System are regulated by the Fed. Any state-chartered bank that isn’t part of the Federal Reserve System is regulated by the FDIC instead. The FDIC regulates more than 5,000 state-chartered banks and savings associations.

What Is a Federally Chartered Bank?

Next, here’s a look at what a federally chartered bank is. It’s a bank that receives its charter from the federal government. The Office of the Comptroller of the Currency is responsible for regulating nationally-chartered banks and savings associations. The OCC is an independent branch of the Treasury Department.

Federally chartered banks are authorized to operate on a national scale. A federally chartered bank can be a traditional financial institution or an online banking platform.

Chartered Bank Oversight

Now that you know what is a chartered bank and what isn’t, here’s a bit more about how chartered banks are regulated. They are typically subject to oversight from the agency that issued their charter. Generally speaking, this oversight is designed to ensure the smooth operation of the bank itself while protecting consumer interests. Some of the things chartering agencies do include:

•   Visiting the bank to conduct on-site examinations

•   Monitoring the bank’s compliance with banking laws

•   Issuing regulations to cover banking operations

•   Taking enforcement actions when a bank violates a regulation or rule

•   Ensuring that the bank is financially sound and is conducting ethical banking practices

In extreme cases, the chartering agency may revoke the bank’s charter or close a bank if it fails. In the case of FDIC member banks, the FDIC steps in to cover deposits for customers. As noted, the current FDIC coverage limit is $250,000 per depositor, per account ownership category, per financial institution.

Chartered vs Online Banks

A bank can be chartered and have branches, or it can be chartered and operate online. In terms of what’s different between chartered banks that have physical branches and those that operate online, here are a few things to know:

•   Online banks tend to offer higher interest rates on savings accounts and possibly checking, too.

•   Online banks may also charge fewer bank fees, since they have lower overhead costs.

•   Brick-and-mortar chartered banks may offer a wider selection of banking products and services.

•   Traditional chartered banks can offer in-person banking, while online banks may limit you to accessing your account online or via a mobile banking app.

Whether it makes sense to choose a traditional chartered bank vs. an online bank can depend on your preferences and needs. If you want to get the best rates on savings and don’t mind branchless banking, then you might choose an online bank. On the other hand, if you like being able to pop into a branch from time to time, you might prefer a brick-and-mortar chartered bank.

Keep in mind, however, that not all online financial companies (sometimes called fintechs) are chartered banks. There are many startups, but it’s wise to do your research and see what benefits and protections they offer, either by reading the fine print or asking customer service.

Recommended: Online vs. Traditional Banking: What’s Your Best Option?

Chartered vs Commercial Banks

A commercial bank is a financial institution that engages in banking services, including accepting deposits and making loans. In that sense, it sounds similar to a chartered bank. In fact, a commercial bank can be a chartered bank, though not all commercial banks are.

Examples of chartered commercial banks include:

•   National banks that are chartered by the OCC

•   Non-member banks that are state-chartered but not part of the Federal Reserve System

•   State member banks that are state-chartered and part of the Federal Reserve System

When comparing a chartered vs. commercial bank, the main difference is the charter. A chartered bank is required to have either a state or national charter; a commercial bank may be chartered, but it isn’t required to be in order to operate.

Should I Do Business With a Chartered Bank?

Whether you opt to do business with a chartered bank is a matter of personal preference. Opening accounts with a chartered bank could give you some peace of mind since you know the bank is subject to regulation. And in the rare event that the bank fails, the FDIC can step in and restore your deposits to you.

When comparing chartered banks, consider such aspects as:

•   Account types offered

•   Account fees

•   Interest rates for deposit accounts

•   Interest rates for loans if you plan to borrow

•   Minimum deposit requirements

•   Access and convenience

•   Customer support availability

Security is another factor to weigh. The safety of mobile banking, for instance, might concern you if you’re used to managing your accounts at a branch or ATM. The good news is that online banks, chartered or not, have increasingly stepped up security efforts to protect customer accounts.

Keep in mind that you’re not limited to just one bank either. You may choose to open a checking account at a traditional chartered bank, for instance, and a high-yield savings account at an online bank. If you’re wondering whether to have a lot of bank accounts, it can be helpful to have checking and savings at a minimum.

You can use checking to hold the money you plan to spend now, and savings for the money you want to grow. Or you might prefer a simple hybrid approach that gives you the best of both worlds in one place.

Recommended: How to Open a New Bank Account

The Takeaway

Whether you open your accounts at a chartered bank or not, it’s important to find a financial institution that matches your needs. If you’ve only ever done business with traditional banks, you may want to consider the merits of using an online bank.

SoFi holds a national banking charter, an important point to consider as you think about your banking options.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Are all banks federally chartered?

No, not all banks are federally chartered. Some banks hold a state charter instead.

What is a non-chartered bank?

A non-chartered bank is a bank that does not have a federal or state charter. Neobanks are an example of a bank that has no charter, though technically, they do not meet the strict definition of a bank.

What is the difference between a state and federally chartered bank?

State-chartered banks receive their charters from state agencies. They’re subject to regulation by the FDIC or the Federal Reserve if they’re part of the Federal Reserve System. Federally-chartered banks receive their charters from the federal government and are regulated by the OCC, or Office of the Comptroller of Currency.

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Photo credit: iStock/ultramarine5

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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